The Role of Finance in Delivering a Nature-Positive Transition
The Green Finance Institute welcomes the publication of the Dasgupta Review today in calling attention to the urgent and fundamental change needed in how we think about and approach economics if we are to reverse biodiversity loss and protect and enhance our prosperity and the natural world.
In two chapters dedicated to the role of the finance sector, the Review lays out the risk to the financial system of biodiversity loss, as well the role of the industry in shifting capital flows away from nature-negative outcomes and towards nature-positive outcomes.
In order to ensure the Review’s thorough findings result in action and to share current learnings from across the sector, the Green Finance Institute will be gathering detailed responses to the Review from across the global private finance sector over the coming weeks with the aim of publishing recommendations for next steps.
In particular responses will focus on three key areas highlighted by the Review.
1. Assessing nature-based risk
As with climate, the financial sector is exposed to various nature-based risks: physical risk; transition risk such as stranded asset risk and systemic risk. As consumer awareness around deforestation and pollution continues to grow, financial institutions will also be increasingly exposed directly and indirectly to litigation risk.
2. Reducing/halting the flow of capital to nature-negative outcomes and increasing the flow of capital to nature-positive outcomes.
Assessing the financial sector’s impact on nature is a critical first step on the pathway to redirecting the flow of capital away from nature-negative outcomes into nature-positive outcomes. This entails mapping ecosystem-level impact by sector, as well as understanding the different channels through which capital flows (trade finance, development finance, supply chains etc). It will require turning complex information into decision-useful data for companies and financial institutions – including the use of geospatial data.
3. Mobilising capital to nature-based projects/nature-based solutions
The flow of capital into nature restoration and improvement falls far below what is needed. It is therefore critical to create and accelerate investment and revenue-generative opportunities for nature-positive finance. This will mean developing transformative funding mechanisms to create new investment opportunities and markets for nature and nature-based solutions. There exist however multiple barriers to investment that need to be identified and worked through, many of which are local.
Reflecting on the Review, Sir Roger Gifford, member of the Dasgupta Review’s Advisory Panel and Chair of the Green Finance Institute said:
“The Dasgupta Review confirms what we know in our hearts is true – in our failure to value natural capital in trade and commerce we have pushed our ecosystems to breaking point. We must respond – what is needed is no less than a fundamental and urgent rethink of how we source and use basic commodities and finance has a crucial role to play in making this happen.”
Green Finance Institute CEO, Dr Rhian-Mari Thomas OBE, who is also Co-Chair of the Informal Working Group of the Taskforce for Nature-Related Financial Disclosures (TNFD) shared:
“The Dasgupta Review makes clear that the value of nature and ecosystem services to our global economy urgently needs to be translated into financial risk models and impact assessments. In response, we need determined action in redirecting global financial flows away from nature-negative outcomes and towards nature-positive outcomes. As with climate, to achieve a nature-positive transition will require all of finance to work together to be part of the solution – both private and public.”
These comments in addition to those from across the finance industry, as well as the full Review can be found at the following link: https://www.gov.uk/government/collections/the-economics-of-biodiversity-the-dasgupta- review
Background on the Review
In Spring 2019, the UK’s Chancellor of the Exchequer commissioned a global independent review on the economics of biodiversity, led by Professor Sir Partha Dasgupta, Frank Ramsey Emeritus Professor of Economics at the University of Cambridge.
Professor Dasgupta has been supported by an Advisory Panel, drawn from public policy, science, economics, finance and business.